The Ministry of Economic Development of the Russian Federation revised its forecast for 2010-2012. According to the new estimate, inflation is expected to be significantly lower than what previous models predicted. According to Andrey Klepach, Deputy Minister of Economic Development, inflation will be around 6.5 to 7.5 percent, not 9 to 10 percent as thought earlier. The oil price will be USD 65 per barrel. In 2010, the GDP will grow modestly by approximately 3.1 percent.

The exchange rate of the Russian currency will be RUR 28.2 to USD 1, not RUR 33.9 to USD 1, as predicted before.

The Ministry of Economic Development considered three courses of the country’s development. The second scenario, termed as “moderately conservative” is considered to be the most probable. Oil prices under this model will grow slightly – to USD 65 in 2010, USD 70 in 2011, and USD 71 in 2012.

The Ministry’s “1a” scenario puts the price of oil at USD 58 in 2010, USD 59 in 2011, and USD 60 in 2012. The best scenario, called “2b” envisions the prices of oil to be USD 69 in 2010, USD 74 in 2011, and USD 81 in 2012.  

The “2b” scenario, which is modeled on the Russian federal budget for 2010, departs from the country’s main spending blueprint by suggesting higher oil prices. Inflation levels in each model are from 6.5 to 7.5 percent in 2010, 6 to 7 percent in 2011, and 5 to 6.5 percent in 2012. As late as September 2009, the Ministry predicted inflation to reach 9 to 10 percent.

The likeliest “2b” scenario envisions the growth of the GDP to be 3.1 percent in 2010, 3.4 in 2011, and 4.2 percent in 2012. According to the most pessimistic scenario that computes oil prices in accordance with figures in the actual budget, the GDP will grow by 1.3 percent in the current year, 1 percent in 2011, and 2.9 percent in 2012. In accordance with an earlier estimate, GDP should have increased 1.6 percent in 2010, 3 percent in 2011, and 4.3 percent in 2012.   

In accordance with the “2b” projections, Russia’s GDP will increase 3.5 percent in 2010, 2.6 percent in 2011, and 4.7 percent in 2012.

Lower inflation in 2010 means that the growth in income and domestic demand will be small in 2010. The upper boundary of inflation at 7.5 percent may become a reality in view of the increases in utility charges and the rising cost of food on international markets. 

According to the Russian Ministry of Economic Development, its exchange-rate forecasts were prepared without consultations with the Central Bank. Better exchange forecasts are the result of a higher trade balance and the refinancing of debt. Within the framework of the second scenario, the Russian rouble will appreciate against the dollar to RUR 27.8 to USD 1 in 2011. In 2012, the rouble will be strengthened to RUR 25.5 to USD 1. The previous forecast had the exchange rates for 2011 and 2012 at RUR 34.8 to USD 1 and RUR 36.4 to USD 1 respectively. Even the most pessimistic scenario now has the exchange rate as RUR 29.5 for 2010, RUR 30 for 2011, and RUR 30.5 for 2012.

In accordance with the most probable model, capital inflow will be zero for 2010. The model used in the “1a” scenario predicts that there will be net capital outflows in the amount of USD 20 billion.

Capital investment in Russia will grow by 2.9 percent in 2010, 7.9 percent in 2011, and 10.3 percent in 2012. In accordance with the moderately conservative model, the growth of retail trade will total 3.3 percent in 2010, 4.1 percent in 2011, and 4.1 percent in 2012. Industrial output will increase by 2.8 percent in 2010, 2.9 percent in 2011, and 4.3 percent in 2012.

Exports will stand at USD 350 billion in 2010, USD 380 billion in 2011 and USD 401 billion in 2012. Import volumes are expected to be USD 226 billion in 2010, USD 253 million in 2011, and USD 283 billion in 2012.    

According to officials from the Ministry of Economic Development, increased oil prices will produce greater export revenues. Also, the effect of the government’s measures to stimulate the economy has been factored into the new economic models.

According to both the “2” and the “2b” scenario, the GDP will rise to what it was before the economic crisis in 2012. Under the “1a” scenario, the GDP will not surpass 2008 levels by 2012.

Deputy Minister Klepach noted that Russia is seeing the emergence of a new economic growth pattern, where productivity rises quicker than wages and imports do not grow as intensively as before the crisis. 

Growth in 2010 might even by as high as 5 to 6 percent, if such problems as market competition, the freeze on commercial lending, and slowed down government orders, will be avoided.

While the Russian government made no immediate plans to amend the existing 2010 budget on the basis of the new forecast, possible changes could take place in March or April.